The Morningstar’s Instant X-Ray Tool

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The Morningstar User’s Guide is a series of articles discussing how to make the best use of the tools, research and analysis available at Morningstar.com.

Morningstar’s X-Ray tool, as the name suggests, allows you to look through your portfolio of mutual funds to see exactly what you own. This tool is a great way to view your asset allocation and to determine exactly how much of a given company’s stock you own.

There are two versions of the X-Ray feature–Instant X-Ray, which is free, and a more robust X-Ray tool that is available only through a premium membership. I describe the Instant X-Ray tool today, which provides a wealth of information.

The Instant X-Ray tool can be tricky to find. The reason is that if you view your portfolio, you’ll see an X-Ray tab along the top of the page with a + sign next to it. The + sign indicates the feature is only available to premium (i.e., paid) members. So how do you get to the Instant X-Ray tool?

Click on the Tools blue tab at the top of the page and scroll down until you see the Instant X-Ray link. Unfortunately, Instant X-Ray is not part of the portfolio feature, which means you need to type in all of your holdings and their values to use the tool. Unless you own a lot of mutual funds, however, this shouldn’t take very long. Here’s a quick tip–pull up your Morningstar portfolio manager in a separate window and in MyView make sure you’ve selected the Ticker Symbol and the Current Market Value data options. With this window open side-by-side the window showing the Instant X-Ray, I was able to enter my portfolio in about 60 seconds.

The results provide a substantial amount of information about asset allocation, style box information (i.e., market cap and value vs. growth), world regions where your funds have invested, and statistics about your funds such as P/E and P/B. Let’s take a more detailed look at some of these.

Asset Allocation

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Instant X-Ray is a great way to get a quick assessment of your asset allocation. The asset allocation of my portfolio is shown here. One thing that first surprised me is that I own more than 11% in cash. How did that happen? Well, almost all stock funds hold some amount in cash, even S&P 500 index funds. Why? There can be a number of reasons for this, the principal one being that the fund has to pay cash to any fund owner that wants to sell his or her shares. Funds like to keep some cash on hand for this purpose so they aren’t forced to sell stocks (which may generate capital gains tax for you and me).

The other thing you may notice is that I own just over 35% in foreign funds. Some may view that as excessive. I actually am slowly increasing that percentage. You can read more about this subject in my series on asset allocation.

One very important feature of Instant X-Ray is sometimes overlooked. Next to each major heading you’ll see a link called “Holding Details.” This link will take you to more detailed information about your portfolio. This is a great feature, and is available with a paid membership. Morningstar does offer a 14-day free trial of its premium service, so you can sign up now and check out this additional information.

Stock Style Diversification

This block will show you the market cap and investing style (value versus growth) of your portfolio, both of which are covered in my Beginner’s Guide to Asset Allocation series. In my portfolio, I have 34% in value stocks, 30% in growth stocks, and the rest somewhere in the middle. This reflects my bias toward value investing, although in times past my portfolio has been even more weighted towards value. It also shows that 20% of my portfolio is in small cap companies. Again, this reflects my bias toward smaller companies, because I believe over the long run they will return more than larger companies.

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You’ll also see a second style box called Interest Rate Sensitivity. This style box gives you information about your bond funds. The columns show you how much of your bond funds are in short term, intermediate term, or long term bond funds. For now, just note that the longer term or duration of a bond fund, the more sensitive it is to interest rates. Remember, as interest rates go up, the value of a bond goes down. The longer the term of the bond, the more it will go down. And the rows in the style box show the credit quality of the borrowers of the bonds. I have 45% of my bond holdings in the low credit category, which reflects the fact that I have a high yield (i.e., junk) bond fund.

World Regions

This is a great way to quickly see what regions of the country your mutual funds are invested. This tool can help you avoid having too much money invested in just one region of the world (excluding the U.S., of course). My portfolio is fairly typical in that my international funds are weighted toward Europe and Asia. Note that Japan is a separate category all to itself.

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Fees & Expenses

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For all the hype about picking a “hot” mutual fund, this box showing the cost of your mutual funds is the most important aspect in designing a sound portfolio (in my humble opinion). You’ll see that my average cost is 48 basis points (that is, 0.48%). This compares to similarly weighted portfolios that on average cost 1.44%. Given the balance of my portfolio, I pay just over $2,000 a year to the mutual fund companies. That’s a lot of money, but it’s better than the nearly $6,000 I’d pay at 1.44%. My goal is to keep my total costs below 50 basis points and the cost of any one fund below 100 basis points. Mutual funds cost money, and over time, they cost a lot of money. Morningstar can help you keep track of just how much, so you can make changes as necessary.

Stock Stats

The last box I’ll talk about is the Stock Stats. This is a great way to get a snap shot of your portfolio’s price related statistics. My stats show that for all of my mutual funds, the average Price/Earning Forward ratio is 15.78. The Forward part of the P/E ratio means that in calculating the ratio, Moringstar uses a projection of earnings over the next 12 months.

Historically, 15.78 is within a reasonable range, which in part reflects my bias toward value funds, which have lower P/E ratios than growth funds. You can read more about the P/E ratio by clicking on the value/growth link above. You’ll also see from the stats that the yield % of my funds is 2.31. This means that the stock owned by my mutual funds on average pay out 2.31% in dividends each year. Finally, you’ll note that the average market cap of my stock holdings is just over $9 billion, which again reflects my bias toward smaller companies.

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If you’ve not used the Instant X-Ray tool before, or if you haven’t checked your portfolio in the last 6 months, I encourage you to do so. This online investing tool from Morningstar provides a lot of information very quickly that can help you make sound investing choices.

Books I recommend about asset allocation:

Recommended Books:

Return to the Morningstar User’s Guide table of contents.

Note: This article was originally published in 2007. You can view a more current description of my investment portfolio here.

Published or Updated: March 29, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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